IFRS 16 (UK-adopted international accounting standards)

IFRS 16 Lease Calculator
United Kingdom

IFRS 16 lease calculator with United Kingdom-specific regulatory context, Financial Reporting Council (FRC) expectations, and local inspection findings.

Lease Terms

If checked, ROU asset depreciates over useful life instead of lease term (IFRS 16.32)

IFRS 16 Lease Audit Working Paper Template & Checklist — free PDF

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IFRS 16.26 — At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date.

IFRS 16.23–24 — At the commencement date, a lessee shall measure the right-of-use asset at cost.

ISA 500 — Sufficient appropriate audit evidence for the lease liability as independent audit evidence.

ISA 540 — Auditing accounting estimates — applies to the IBR determination and lease term judgment.

IFRS 16 in United Kingdom — IFRS 16 (UK-adopted international accounting standards)

The United Kingdom adopted IFRS 16 as part of UK-adopted international accounting standards following Brexit, effective for periods beginning on or after 1 January 2019 (unchanged from the EU adoption timeline). UK-adopted IFRS 16 is substantively identical to IASB-issued IFRS 16, with no UK-specific amendments to the lease standard itself. However, the Financial Reporting Council (FRC) has issued specific guidance and thematic reviews that create practical expectations beyond the bare standard requirements.

Regulatory Context — Financial Reporting Council (FRC)

The FRC's Financial Reporting Lab published a report on IFRS 16 implementation in 2020, followed by thematic reviews identifying common issues. Key FRC findings include: inadequate disclosure of discount rate methodologies, insufficient explanation of lease term judgments for extension and termination options, lack of quantitative sensitivity analysis for material assumptions, and inconsistent application of the short-term lease exemption. The FRC has indicated that it expects entities to disclose the weighted average IBR and to explain the basis for significant lease term judgments. Companies Act 2006 requirements for the strategic report and directors' report should address the impact of IFRS 16 on key financial metrics.

Practical Guidance for United Kingdom

For UK entities, determining the IBR requires consideration of Bank of England base rates, UK corporate bond yields, and entity-specific credit adjustments. Post-Brexit, UK entities should use UK market rates rather than Eurozone rates unless the lease is denominated in a foreign currency. For property leases in England and Wales, the Landlord and Tenant Act 1954 provides statutory renewal rights for business tenants, which may affect the IFRS 16 lease term assessment — security of tenure may make extension reasonably certain even without a contractual option. In Scotland, the equivalent legislation is the Tenancy of Shops (Scotland) Act 1949 and common law principles.

Audit Expectations

The FRC's Audit Quality Review (AQR) team has flagged IFRS 16 as an area of focus in audit quality inspections. Common findings include: insufficient challenge of management's IBR methodology, inadequate testing of the completeness of the lease population, lack of standalone procedures over lease term assessments for material leases, and insufficient consideration of embedded leases in service contracts. Auditors should expect to document their IBR assessment work, lease term challenge, and completeness testing in detail.

United Kingdom-Specific Considerations

UK-specific considerations include the impact of IFRS 16 on distributable profits under Companies Act 2006. The recognition of a day-one ROU asset and lease liability does not itself create unrealised profits, but the subsequent depreciation and interest expense profile differs from operating lease expense, potentially affecting distributable reserves calculations. Large and medium-sized companies must also consider the Companies (Miscellaneous Reporting) Regulations 2018 requirements for Section 172 statements, which may reference lease commitments as part of the entity's approach to long-term decision-making.

Common Inspection Findings

Insufficient challenge of management's IBR methodology — rates not adequately entity-specific

Lease population completeness not adequately tested — embedded leases in service contracts missed

Lease term assessments for extension and termination options not individually documented for material leases

Sensitivity analysis for material discount rate assumptions not performed or disclosed

Transition adjustments not adequately verified — particularly the modified retrospective approach calculations

Frequently Asked Questions — United Kingdom

Is UK-adopted IFRS 16 different from IASB IFRS 16?
No substantive differences. UK-adopted IFRS 16 is the same standard endorsed for use in the UK following Brexit. The UK Endorsement Board (UKEB) endorsed IFRS 16 without amendment. Future IASB amendments to IFRS 16 would need separate UK endorsement, but as of 2026, all amendments have been endorsed in parallel.
What has the FRC said about IFRS 16 disclosure quality?
The FRC has identified common disclosure deficiencies including: failure to disclose weighted average IBR, insufficient explanation of lease term judgments, lack of sensitivity analysis for material assumptions, generic rather than entity-specific disclosure language, and inadequate reconciliation between minimum lease payments disclosed pre-IFRS 16 and lease liabilities recognised. The FRC expects UK entities to provide entity-specific, informative disclosures.
How does the Landlord and Tenant Act 1954 affect IFRS 16 lease term?
The 1954 Act provides business tenants in England and Wales with security of tenure — the right to renew a lease at market rent unless the landlord can establish specific grounds for refusal. This statutory right may make lease extension 'reasonably certain' under IFRS 16.18–19, even without a contractual renewal option. Entities should assess whether security of tenure effectively extends the lease term for IFRS 16 purposes.
What discount rate approach does the FRC expect for UK entities?
The FRC expects entities to disclose the weighted average IBR and the methodology used. For UK entities, the IBR should reference UK market rates — Bank of England base rate plus term and credit adjustments. Property-secured leases should reference UK mortgage or commercial property lending rates. The FRC has challenged entities that use group-level IBRs without adjustment for entity-specific factors.
Does IFRS 16 affect distributable profits under the Companies Act 2006?
The transition to IFRS 16 does not itself create distributable or non-distributable profits. However, the ongoing expense profile (depreciation + interest vs. previous operating lease expense) may differ, affecting cumulative realised profits over time. Companies should review their distributable reserves calculations with legal counsel, particularly if they are close to distributable profit constraints.

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